Joint Employer Liability: A Frightening New World

Written by Robert G. Brody and Alexander Friedman on March 1, 2016

Connecticut Law Tribune
January 25, 2016

If two entities are deemed joint employers, they each can be held liable for the employment related acts of the other.  In August 2015, the National Labor Relations Board (“NLRB”) decided Browning-Ferris Industries of California, Inc. and drastically changed the standard for defining joint employers.  Now, the General Counsel (“GC”) of the NLRB wants to apply that decision to the franchisor-franchisee model.  McDonald’s, the multinational quick service giant, is at the center of this fight.  While both these decision only involve the National Labor Relations Act, the movement to expand the definition of joint employers is hitting many other disciplines, including wage and hour laws and Title VII. The question is how far will this movement spread?

The NLRB’s New Joint Employer Standard.

For over 30 years, the NLRB found two entities joint employers if they shared or codetermined matters governing the essential terms and conditions of employment and actually exercised this power.  Where one entity had direct and immediate control over various aspects of employment over the other entity’s employees including such things as supervision, scheduling, hiring, firing, or directing those employees, these entities would be joint employers.  However, after Browning-Ferris, the Board now considers whether an employer has exercised control over terms and conditions of employment indirectly through an intermediary, or whether it has reserved the authority to do so.  In other words, if an employer has the ability to exercise control, even where it did not use that authority, it can be found to be a joint employer.  This standard vastly expands the range of employers that could be subject to joint employer status and could expose them to significant monetary damages for the actions of the other joint employer.

Despite these significant ramifications, the Browning-Ferris decision is highly limited in its scope.  The Board’s decision was fact-specific.  The case centered on the employer’s (“BFI’s”) use of Leadpoint, a temporary staffing agency.  The Board found BFI was the joint employer with Leadpoint.  It relied on the indirect and direct control BFI possessed over the essential terms and conditions of employment of Leadpoint’s workers and BFI’s reserved authority to control these terms and conditions.  This case was the traditional temporary employment agency case.  The majority recognized this when it adopted its new standard, but made clear the decision did not apply to the franchisor-franchisee context or any other employment relationship.

In his amicus brief in Browning-Ferris, the GC indicated the new, relaxed standard should also be applied to the franchisor-franchisee relationship.  The GC argued franchisors typically dictate the terms of franchise agreements and “can exert significant control over the day-to-day operations of their franchisees,” including the number of workers employed at a franchise and the hours each employee works.  Although the Board ultimately resisted, the GC is now pursuing that ruling against McDonald’s.

If the Board determines McDonald’s is a joint employer with its franchisees by applying the relaxed Browning-Ferris standard to the franchisor-franchisee relationship, the decision will fundamentally alter the franchising model used in this country.  The decision would make the franchisor liable for the illegal actions of its franchisees under at least the National Labor Relations Board, even where the franchisor had no direct control over those allegedly unlawful actions.  If this comes to pass, the next question is what other laws will use the new joint employer standard?

Joint Employer Liability under Title VII

Other areas of the law will be or may have already have been impacted by the decision in Browning-Ferris.  Let’s consider Title VII.  Title VII of the 1964 Civil Rights Act generally prohibits employers from discriminating against employees on the basis of sex, race, color, national origin, and religion.  The practical concern in the joint employer arena is if a primary employer makes racially insensitive comments about its employees, will the joint employer be liable?

Most recently, in Faush v. Tuesday Morning, the Third Circuit Court of Appeals adopted the ERISA joint employer test from the US Supreme Court’s Nationwide Mutual Insurance Co. v. Darden decision.  In Faush, Plaintiff was employed by a staffing agency and assigned to work at the defendant (the putative employer), where he claimed he was subjected to racially discriminatory comments and terminated because of his race.  He brought an employment discrimination suit under Title VII against the putative employer.  The key factors used to make the joint employer determination were: whether the skills used at both companies were similar, the source of the instrumentalities and tools was the putative employer, the work was performed at the putative employer’s business, the duration of the relationship between the parties was ongoing, and the putative employer had the right to assign additional projects to the employee.  Weighing all these factors (no single factor is dispositive), the court determined there was enough evidence of joint employment to defeat the putative employer’s summary judgment motion.

One month before the decision in Browning-Ferris, the Fourth Circuit Court of Appeals in Butler v. Drive Automotive Industries adopted a similar test to Faush but it considered eleven factors.  In that case, Plaintiff was hired by a temp agency to work at Drive Automotive, where she claimed she was subjected to verbal and physical sexual harassment and was terminated as a result of her complaints to both companies.  The factors considered are similar to those in the Third Circuit test, but the Court noted that the first three factors (who had authority to hire and fire employees; day-to-day supervision of the employee, including disciplining the employee; who furnished the equipment used by the employee; and the actual workplace used by the employee) were the most important.  The element of control over the employee remained the “principal guidepost” in the analysis.  Weighing these factors, the Court found Drive Automotive was a joint employer and therefore subject to Title VII liability.

Joint Employers under Wage and Hour Laws

The wage and hour context, particularly under the federal Fair Labor Standards Act (FLSA), is another area where joint employer liability is a huge concern.  The FLSA generally establishes minimum wage, overtime pay, recordkeeping, and youth employment standards for private sector and government employees.  If one employer fails to properly pay employees for overtime, the joint employer could be liable for that overtime pay.  In today’s world, these cases can involve immense liability.

In this context, many courts have cited the Ninth Circuit’s opinion in Bonnette v. California Health and Welfare Agency as the foundational test for FLSA joint employer liability.  In that case, the Court addressed the issue of whether a state welfare agency was a joint employer of domestic in-home caregivers, and found that they were, based on the level of control they possessed.  The test examines whether the putative employer had the power to hire and fire the employees, supervised and controlled employee work schedules or conditions of employment, determined the rate and method of payment, and maintained employment records.

The Second Circuit originally adopted those four factors, but has since added six additional factors in a 2003 case entitled Zheng v. Liberty Apparel.  Among the additional factors, the key ones are whether the employee used the putative employer’s premises and equipment, the transferability of a contract (for the employees) among multiple putative employers, and the degree of supervision from the putative employer.  In that case, the plaintiffs were factory workers employed by contractors doing business at the same factory.  When one of those employees was not paid thousands of dollars in alleged wages, the employee sued the contractors and Liberty Apparel as joint employers.  Because the District Court had exclusively considered the four Bonnette factors, the Second Circuit remanded the case so the additional factors could also be considered.  As in the Title VII context, these multi-factor tests are fact-specific and could produce variable outcomes.  The tests leave judges with broad discretion.

Is OSHA Next?

Although there is no current legal test for joint employer liability under the Occupational Safety and Health Administration (OSHA) Act, an internal OSHA memo issued in 2015, made it clear the agency is at least considering the possibility of pursuing liability in the franchisor-franchisee context.  OSHA joint employer liability would have enormous implications.  The franchisor could potentially be held liable for unsafe work conditions, including injuries suffered by kitchen workers, even though it merely had the reserved authority to control and in fact did not exercise this control at all.

Conclusion

Establishing a lower threshold in finding joint employer status would likely result in a noticeable increase in the number of lawsuits brought against employers.  Employee-plaintiffs will know they have an extra, and possibly much larger, pocket to pick.  Whether these cases will in fact lower the standard and spread it to new legal areas is an issue only time will tell.

Robert G. Brody is the founder of Brody and Associates, LLC.  Alexander Friedman is an associate at the firm.  Brody and Associates represents management in employment and labor law matters and has offices in Westport and New York City.  The authors wish to thank Ryan Landauer for his assistance in preparing this article.

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Related Topics: Legal Updates, NLRB, Published Articles, Union Issues

About the Authors

Robert G. Brody is the founding member of Brody and Associates, LLC. He has been quoted and published in national publications and appears as a guest T.V. commentator on contemporary Labor and Employment issues. Learn More

Alexander Friedman is an Associate with Brody and Associates, LLC. He works on both Labor and Employment Law matters. Learn More